On 9 September 2026, HM Treasury and HMRC jointly published the policy paper “Introduction of Carbon Border Adjustment Mechanism” (CBAM), establishing the UK’s landmark carbon leakage framework. The mechanism will apply a carbon price on imports of certain goods from sectors at risk of carbon leakage, aligning with the UK Emissions Trading Scheme (UK ETS). The policy paper outlines the design principles, sectoral scope, and implementation timeline, with the mechanism expected to take effect from 1 January 2027 following a transitional reporting period. This move positions the UK alongside the EU CBAM, aiming to ensure a level playing field for domestic producers subject to carbon costs while meeting net-zero commitments.
Key Takeaways
- Sectoral Coverage and Carbon Pricing: The CBAM will initially cover aluminium, cement, fertilisers, hydrogen, iron, and steel imports. Importers will be required to purchase CBAM certificates reflecting the embedded emissions in these goods, priced according to the UK ETS auction price, with adjustments for any carbon price already paid in the country of origin.
- Transitional Reporting and Compliance Obligations: From 1 October 2026, importers must report quarterly on the volume and embedded emissions of CBAM goods. Full financial liability begins 1 January 2027. HMRC will administer the regime, requiring authorised CBAM declarants to register, submit emissions data verified by accredited verifiers, and surrender certificates annually.
- Implications for Multinational Supply Chains: Affected businesses must map supply chains to determine embedded emissions, engage with overseas suppliers for data, and integrate CBAM compliance into customs and tax reporting systems. The policy provides for default values where actual emissions data is unavailable, but these may increase certificate costs. Companies should assess exposure now and prepare for the transitional reporting phase.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement